Friday, May 20, 2011

Doing The Bidding For The Oil And Financial Sectors

Which is the GOP more dedicated to- the oil industry or the financial services industry?

On behalf of the oil industry: A procedural vote which would have enabled debate on S 258, the Close Big Oil Tax Loopholes Act, was defeated in the U.S. Senate on Thursday when it received only 52 votes, eight short of the needed 60. Oil companies receive approximately $2 billion a year in "incentives" and made approximately $38 billion in profits in the first quarter of 2011, The bill would have applied to the five largest, most profitable multinational oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips.

The debate on the motion to proceed to consider the bill to return some money to the Treasury received two (2) "aye" votes (the ladies Maine) from the (when convenient) party of deficit obsession, leaving 45 Republicans voting in favor of their oil industry benefactors. Fifty (50) Senators who caucus with the Democratic Party voted in favor of discussing a bill to end the tax breaks, with two (Mary Landrieu and Mark Begich) who voted with the GOP/oil industry representing states dominated by the oil industry.

Is there any mystery why nearly every Republican voted with the industry? As the chart, below, from the Center for Responsive Politics via DailyKos illustrates, the top six, and 12 of the top 13, recipients of campaign contributions from the oil and gas industries since 1989 are Republicans. Each of them voted no, as did Landrieu, the only Democrat, at #7, to crack the 13. The bottom 13 are all Democrats (including Independent Bernie Sanders, one of the few authentic Democrats left in the Senate) and they all voted to discuss the issue.

Loathe to admit they are doing the bidding of the corporate sector, Republicans instead argued, against all evidence, that removing the "incentives" would cause the price of gas to rise, presumably more than the roughly 27% it has risen in the past year, in presence of those "incentives." Supply contributed far, far less to the increase than have other factors, including speculation. As Reuters' David Sheppard explains

Goldman estimated in a research note on March 21 that every million barrels of oil held by speculators contributed to an 8-10 cent rise in the oil price. As unrest spread in North Africa and the Middle East, investors accumulated the equivalent of almost 100 million barrels of oil between mid-February and late March on top of their existing positions, adding approximately $10 to the 'risk premium', Goldman said.

The U.S. Commodity Futures Trading Commission said that as of last Tuesday, hedge funds and other financial traders held a total net-long positions in U.S. crude contracts equivalent to a near record 267.5 million barrels.

Using Goldman's estimates, that indicates the total speculative premium in U.S. crude oil is currently between $21.40 and $26.75 a barrel, or about a fifth of the price.

Pursuant to the Dodd-Frank financial reform law, speculation in the oil futures market could be restricted by the U.S. Commodity Futures Trading Commission, whose chairman earlier this year asserted "We could have helpful limits in place that could guard against markets being adversely impacted by excessive speculation. We could do that now if we wanted. And, as you can tell, I want." But as Pat Garofalo notes at Think Progress

even assuming the CFTC follows through with implementing the law, it will be hard pressed to enforce any limits if the budgets cuts envisioned by House Republicans are actually enacted. H.R. 1, the House Republican approved spending plan for the remainder of 2011, includes a nearly one-third cut in the CFTC’s budget. Such a draconian cut would require the CFTC to lay off more than 30 percent of its staff. “We’d have to have significant curtailment of our staff and resources,” CFTC Chairman Gary Gensler said. “We would not be able to police…or ensure transparent markets in futures or swaps.”

House Republicans are doing their share. On May 4

splitting along party lines, the House Agriculture Committee voted to delay by 18 months implementation of rules governing derivatives, the kind of complex financial instruments that were blamed for putting the financial system in jeopardy. The bill would require regulators to gather additional comments and further examine the potential downside of the rules.

Committee Chairman Frank D. Lucas (R-Okla.) said in a statement that he was trying to avoid rushed rulemaking. “We can’t ignore the concerns of businesses that we’re relying on to further our economic recovery,” Lucas said.

Translation: The casino will remain open- we can't impede the ability of corporations to bid up prices for the American consumer by speculation and other gambling in the derivatives market. While the goal is to rescind Dodd-Frank, the strategy aims to undermine the legislation because (not despite) "Unnecessary delay in implementing the Dodd-Frank Act will increase risk to the American people and leave significant uncertainty in the marketplace.”

House Majority Leader Eric Cantor admits, with no hint of shame,that he leans on counsel from the CME Group, which describes itself, with no shame but only pride, "As the world’s leading and most diverse derivatives marketplace."

While the CME Group specializes in trading contracts and derivatives products related to oil and food, Cantor was fourth in his chamber in campaign contributions from the securities and investment industry during the last election cycle. Number 10 was Spencer Bacchus, a Republican from Alabama. Once elected, the incoming chairman of the Financial Services Committee informed us

In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.

And so is Bacchus' party. Talking Points Memo reported earlier this month:

Forty four of their 47 members have signed on to a letter threatening to filibuster any nominee to head the new Consumer Financial Protection Bureau unless it is dramatically weakened.

"We will not support the consideration of any nominee, regardless of party affiliation, to be the CFPB director until the structure of the Consumer Financial Protection Bureau is reformed," reads a letter, co-authored by Senate Minority Leader Mitch McConnell and Sen. Richard Shelby (R-AL), ranking member of the Banking Committee.

Congress created the CFPB, despite GOP opposition, as part of the Wall Street reform law, to protect consumers from predatory actors in the financial industry.

Shelby was #24 in contributions from the securities and investment industry and McConnell, #21 , despite hailing from states in which media buys are relatively inexpensive.

All is not lost. The presumptive- though far from inevitable- nominee for the Bureau is the extraordinary Elizabeth Warren and House Democrats are distributing a letter urging President Obama to tap her for a recess appointment. If Obama follows their advice, a major blow will have been struck for consumers. It would not be sufficient for reversing the three decades-long trend toward deregulation of the financial industry, but it is necessary.

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